SORRY, ALCOA: A New Company Will Be Kicking Off Earnings Season Today

The Goldman Sachs and Nike
corporate logos are displayed on a post above the floor of the
New York Stock Exchange, September 11, 2013. In the biggest
shake-up of the Dow Jones industrial average in nearly a decade,
Goldman Sachs, Visa and Nike will join the storied 30-stock
index, with Bank of America, which just two years ago was the
largest U.S. bank by assets, one of the names exiting the
Dow.REUTERS/Lucas
Jackson

"The traditional opening of earnings season was scheduled [to be]
after Tuesday (10/8) with Alcoa; the new official Dow opening is
[Thursday 9/26] with Nike," said
Howard Silverblatt, a senior index analyst with S&P.

Alcoa used to be the first component of the Dow Jones Industrial
Average to announce earnings.

"The athletic industry in China continues to make progress in
working through excess inventory clearance issues through
discounting," writes Citi analyst Kate McShane. "Belle (Nike and
Adidas' largest retailer in China) reported a 1H13 beat, noting a
relatively stable promotional environment and inventories.
Belle’s increased investments in its clearance e-commerce
platform should also benefit Nike."

Citi expects Nike to report quarterly earnings of $0.77 per
share, which is below the consensus estimate of $0.78. McShane
has a Buy-rating on the stock with a $81 price target.

It's worth noting that the changes to the Dow will impact the
earnings growth expectations for the Dow as a whole. From
FactSet's John Butters:

It is interesting to note that the addition of these new
components will actually result in lower expected earnings growth
for the DJIA over the next several quarters. Using the “old”
constituents (including Alcoa, Bank of America, and
Hewlett-Packard), the average estimated earnings growth rate over
the next five quarters (Q313 – Q314) is 6.9%. Using the “new”
constituents (including Goldman Sachs, NIKE, and Visa), the
average estimated earnings growth rate over the next five
quarters is 5.0%. For each of these quarters, estimated earnings
growth using the “new” components is expected to be lower than
the expected earnings growth using the “old” components.

The main reason for the decrease in expected earnings growth
under the “new” components is the removal of Bank of America from
the index. As of today, Bank of America is projected to be the
largest contributor to earnings growth for the DJIA in four of
the next five quarters (with the exception of Q214). Over the
next five quarters (Q313 – Q314), the projected EPS estimates for
Bank of America are $0.20, $0.29, $0.30, $0.34, and $0.35,
compared to year-ago EPS numbers of $0.00, $0.03, $0.20, $0.32,
and $0.20.

"The estimated earnings growth rate for Q3 2013 is 3.4%," said
Butters of the S&P 500. "The Financials sector is predicted
to report the highest earnings growth for the quarter, while the
Health Care sector is predicted to report the lowest earnings
growth for the quarter."